In finance, both drawdown and disbursement have multiple meanings. They are similar in that they both refer to a transfer of funds from a larger account to a specified recipient. Drawdown most commonly refers to the process of receiving funds from a retirement account or a bank loan, money literally deposited into an individual account. Disbursements are cash outflows; dividend payments, purchases from an investment account and even spending cash are all considered disbursements.
Definitions of Drawdown
Retirement accounts typically have a specified “drawdown percentage,” which represents the portion of the total account balance assumed by the retiree each year. For example, a retiree receives $10,000 from a 5% drawdown on a $200,000 account.
A drawdown loan, sometimes known as a drawdown facility, allows the borrower to take out additional credit with ease. This is often seen with flexible mortgage accounts.
In investing terms, a drawdown refers to the extent of an asset’s price decline from peak-to-trough. If the price of oil declines from $100 to $75 per barrel, its drawdown is 25%.
Definitions of Disbursement
Money disbursements come in many forms; any payment by cash, check, voucher or outlay is considered a disbursement. The more technical use of disbursement usually refers to financial aid or professional financial services.
Financial accountants keep a cash disbursement journal to record all of a company’s expenditures. This journal helps to identify different destinations of cash outflow and potential tax write-offs.
Certain businesses utilize a cash management technique known as “remote disbursement” to manipulate the Federal Reserve’s check-clearing system. When executed properly, remote disbursement allows a company to earn a small amount of additional interest on its deposit accounts.